Chaayos eyes partners to double stores

With 80% of Chaayos' revenues coming from its offline stores, an extensive offline presence will help the company chip away at coffee chains.Supraja Srinivasan | ET Bureau | Updated: June 26, 2017, 16:15 IST

The aggressive expansion will follow a partnership or franchise model that looks to trim the capital expenditure.Café chain Chaayos is looking to step on the gas as it aims to double its store count in the next six months. The Tiger Global Management-backed homegrown tea café chain is currently present in 37 stores across Delhi, Gurugram, Noida, Ghaziabad, Chandigarh and Mumbai.

With 80% of Chaayos' revenues coming from its offline stores, an extensive offline presence will help the company chip away at the dominance of coffee chains such as Café Coffee Day and Starbucks across the country.

"Twenty stores are currently in the fit-out stage. By March 2018, we should be able to take our tally to 70-75 stores," founder Nitin Saluja told ET. The chain, which has a considerable presence in the north, is looking to open about 20-25 stores in Mumbai alone ­ its core focus for FY18.

But the aggressive expansion will follow a partnership or franchise model that looks to trim the capital expenditure involved in the process.The Delhi-based company is looking to partner with property owners to lease the store space along with the fittings in a bid to bring its capital requirement down to zero.

"The idea is that we don't have to dilute our equity every time we open a store. This model makes us asset light and that is what we are now gunning for," Saluja said. With each store straining the books Rs 50 lakh, Chaayos is looking to save upto Rs 18 crore i.e. almost $3 million through this partnership model. “If we were to do 100 stores, I would not want more than 10 flagship stores as company owned and company operated. This (partnership model) is the most prudent way of growing forever for the future,” he said.

The move comes at a time when Chaayos, which competes with Bangalore-based Chai Point and Mumbai-based Tea Trails, is looking to trim all costs in a bid to reach profitability as early as next year. “15 of our 37 stores are over 2 years old and are operating at an EBITDA margin of 20%. In less than 12 months, we will be cash positive at the company level on a month-on-month basis. This partnership-led expansion is a key factor in realising that timeline,” outlined Saluja.

Chaayos declined to comment on the cash burn for FY17. To be sure, the company clocked a loss of Rs 14 crores in FY16.

Chaayos claims to have clocked a 280% growth in revenues at Rs 34 crores in FY17 from Rs 12 crores last year. Chaayos is yet to formally file its FY17 financials with the Registrar of Companies. Saluja is looking to further boost the topline through the offline expansion as also through partnerships for the ‘Ready-to-make’ Chai sachets category, which currently forms 5% of the company’s revenues.

“We are looking at ‘Ready-to-make’ as a long-term and significant category for Chaayos. It will contribute upto 15% of our revenues in a couple of years,” he said. Chaayos has struck partnerships with Spicejet and PVR Cinemas for this category and is currently piloting the 5 month old product at various 5-star hotel chains in Delhi.